Steel demand to rise as govt looks to increase public sector spending

After a subdued trend so far this financial year, the country's steel consumption is likely to rise in the coming months with increase in public sector spending — especially in roads, power, water and gas pipeline projects.

Data compiled by the Joint Plant Committee of the steel ministry shows consumption at 26.2 million tonnes in April-July (first four months of this financial year), a marginal 0.5 per cent increase over the same period last year. Crude steel production at 31.8 mt was five per cent higher.

Anticipating the trend, primary steel producers have raised their product prices by Rs 3,000 a tonne, effective August. This reversal in consumption trend assumes significance in terms of government spending, which would drive all-round growth in this and allied sectors.

"Steel demand is improving with increasing public sector spending, as reflected in increased activity in sectors like roads, power transmission and distribution, solar energy, earthmoving equipment, pre-engineered buildings, water and gas pipelines. Although, sluggish private capital expenditure remains a concern," steel major JSW said in an analyst presentation available on the BSE website.

A CARE Ratings study reported the prices of cold rolled coil and hot rolled (HR) coil in July stood at Rs 44,052 a tonne and Rs 41,656 a tonne respectively. These were up by Rs 929-1,580 a tonne from June, a sequential rise after five months. In January, the prices had increased by Rs 2,250-2,350 a tonne on a monthly basis.

"The prices in July are believed to have increased on account of an improved domestic demand and rise in international steel prices. So, if the price hike undertaken for August is sustained and not rolled back, then these will be up for a second month in a row on a sequential basis," said the study.

The benchmark HR billet prices in China were at their highest in February since the start of the year 2016, at $470 a tonne. These had then declined in each of the next two months and remained flat in May on a sequential basis. However, these rose in each of the months during June-July, over the earlier month. Attributed to supply cuts by the Chinese government to reduce overcapacity and pollution. Also, improved demand for steel in China, backed by government stimulus.

Also, the Chinese government aims at cutting output during winter, to keep a check on quality of air. "This will keep the prices stable in the near term and support the prices in India. As China is the largest producer of steel in the world, the prices in China have an impact on those in India," went the CARE study.